By Stefano Rebaudo and Ankur Banerjee
(Reuters) -The U.S. dollar dropped and bitcoin hit an all-time high on Monday before Donald Trump’s inauguration as U.S. president later in the session, with investors focusing on policy announcements that could immediately affect the greenback.
The yen strengthened, clinging to a one-month high touched on Friday, as traders wager that the Bank of Japan will hike its policy interest rate this week.
Trading volume was expected to be thin due to the U.S. markets being closed for the Martin Luther King Jr. Day holiday.
Softer U.S. inflation data and the prospect of multiple Federal Reserve rate cuts have recently boosted risk assets, including Bitcoin, which hit a record high on Monday at $109,071.86 and was last up 4.2% at $108,025.
Trump has promised to be a “crypto president”, and is expected to issue executive orders aimed at promoting widespread adoption of digital assets.
Some analysts now feared delays in the U.S. administration implementing measures could trigger a “sell the news” reaction, potentially disrupting the positive momentum.
Investors’ attention was firmly fixed on the policies Trump will enact on his first day in office. At a rally on Sunday, Trump said he would impose severe limits on immigration.
Goldman Sachs strategists expect U.S. policy changes to support dollar strength, but cautioned about near-term risks due to the market’s expectations for swift action on tariffs.
The dollar index, which measures the U.S. currency against six peers, was 0.32% lower at 109.08. It hit last week a 26-month high of 110.17.
It has risen 4% since the November presidential election as traders anticipate Trump’s policies will boost growth and inflation.
“There are high expectations of Trump announcing trade tariffs under executive order along with many other policy announcements that could prompt further U.S. dollar gains,” said Derek Halpenny, head of research global markets at MUFG.
TARIFF THREATS
The euro advanced 0.39% to $1.031, but remained near a two-year low touched last week as tariff threats weighed.
“If International Emergency Economic Powers Act (IEEPA) is invoked for trade, markets should see that as a strong statement of intent that the U.S. is planning large-scale tariffs,” said Sjay Rajadhyaksha, research analyst at Barclays, after assessing what announcements could immediately affect markets.
IEEPA is a federal law in the United States that grants the President the authority to regulate economic transactions in response to unusual and extraordinary threats.
